Request-ThinkEquity 2010 Conference Slides (1)

8/9/2019 Request-ThinkEquity 2010 Conference Slides (1)

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ThinkEquity 1

st

AnnualSemiconductor

ConferenceJudy BrunerExecutive Vice President, Administration &

Chief Financial Officer

June 3, 2010


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Page 2 ThinkEquity 1st Annual Semiconductor Conference, New York City

FORWARD-LOOKING STATEMENT

During our meeting today we will be making forward-looking statements.

Any statement that refers to expectations, projections or othercharacterizations of future events or circumstances is a forward-lookingstatement, including those relating to revenue, pricing, market share, marketgrowth, product sales, industry trends, expenses, gross margin, futurememory technology, production capacity and technology transitions and future

products.

Actual results may differ materially from those expressed in these forward-looking statements including due to the factors detailed under the captionRisk Factors and elsewhere in the documents we file from time-to-time withthe SEC, including our annual and quarterly reports.

Reconciliations between Non-GAAP and GAAP results presented areincluded in the appendix of this presentation.

We undertake no obligation to update these forward-looking statements,which speak only as of the date hereof.


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NAND FLASH IS PERVASIVE

TraditionalConsumer

DigitalCameras

DigitalCamcorders

GPS MP3 Gaming USB Flash

Drives

E-Books

Mobile

Smartphones Featurephones

Computing

Netbooks Notebooks

Tablets Enterprise

Other

Automotive Industrial

Medical Military

Established Growing Emerging


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DIGITAL IMAGING & VIDEO DIVERSE MARKET SEGMENTS

BROAD RETAIL PRODUCT PORTFOLIO

SANDISKULTRA

SANDISKEXTREME PRO

SANDISKEXTREME

AUDIO/VIDEOGAMING

STANDARD

COMPUTINGMOBILE


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DIVERSE OEM PRODUCT PORTFOLIO

MOBILEIMAGING & GAMING COMPUTING

PRIVATE LABEL & COMPONENT BUSINESS


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Expanded OEM channels and customers

Diversified memory products

Expanded global reach in OEM and Retail

SANDISK PRODUCT REVENUE MIX

2009 STRATEGIC SHIFT:CREATED NEW GROWTH OPPORTUNITIES IN BOTH

OEM AND RETAIL

20092008

OEM36%

Retail64%

OEM50%

Retail50%


7/45Page 7 ThinkEquity 1st Annual Semiconductor Conference, New York City

$0

$100

$200

$300

$400

$500

$600

$700

Q109 Q209 Q309 Q409 Q110

REVENUEINM

ILLIONS

OEM CHANNEL DROVE Y/Y PRODUCTREVENUE GROWTH IN Q110

OEM Retail

+158% Y/Y

+7% Y/Y



SANDISKS 2009 OEM REVENUE MIX

Grew from ~$1.0B in 2008to ~$1.5B in 2009 with strong

growth in units and PBs

Mobile HandsetVendors

52%

Computing5%

Imaging & Gaming12%

Private Label Cards& Components

13%

Mobile NetworkOperators

18%



MOBILE: SANDISKS

PRIMARY GROWTH DRIVER

END MARKET 2006 2007 2008 2009 Q110

Mobile 25% 35% 34% 41% 49%

Imaging 37% 26% 25% 24% 21%

USB 14% 14% 13% 13% 10%

Other Markets 14% 13% 14% 10% 11%

License & Royalty 10% 12% 15% 12% 9%

TOTAL REVENUE 100% 100% 100% 100% 100%



0

200

400

600

800

1,000

1,200

1,400

1,600

2007 2008 2009 2010 2011 2012 2013

mobile cards embedded flash 1GB+ total handsets handsets w. card slot

SHIPMENTS OF ALL HANDSETS, SLOTTED HANDSETS, EMBEDDED NAND, CARDS - M UNITS

MOBILE STORAGE GROWTH

Source: Wireless Device Strategies Service, Strategy Analytics, February 2010

Embedded flash withat least 1 GB


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SOLID STATE DRIVE:A LARGE EMERGING DEMAND DRIVER

SSD adoption expected to accelerate in 2011

Gartner projects SSD to approach 20% of NAND bitsshipped in 2012

Notebooks: Price/Performance key trigger point

Flash uniquely enables exciting new devices Netbooks, Tablets, others

Smartphone as a PC

Thin Form Factor, Low Power, High Performance


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2010200920082007200620052004

Q110 REVENUE $1.1 BILLION GBs sold up 71% Y/Y

ASP/GB unchangedY/Y

$1.8B65% Growth

$2.3B30% Growth

$3.3B41% Growth

$3.9B20% Growth

$3.3B14% Decline

$3.6B6% Growth

License/Royalty Product

$1.1B65% Growth

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1


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-35%

-30%

-25%

-20%

-15%

-10%-5%

0%

5%

10%

15%

2005 2006 2007 2008 2009 2010

SNDKQ

/QA

SP/GBC

HANGE

SIGNIFICANT CHANGE IN PRICINGTRENDS SINCE Q109

Q1 Q2 Q3 Q4


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42%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

PRODUCT GROSS MARGINAT HISTORICALLY HIGH LEVELS

(1) 2006 - 2010 Product GM% is Non-GAAP excluding stock comp expense, amortization of acquisition-related intangible assets, andpurchase accounting adjustments.

(2) Underlying Product GM% is calculated using Non-GAAP Cost of Sales, adjusted as follows:2008: excludes inventory reserves, fab impairment charges, and accruals for 2009 fab underutilization

2009: excludes inventory reserve benefits, and includes all costs for 2009 fab underutilization

2005 2006 2007 2008 2009

Product GM % (1) Underlying Product GM % (2)

2010


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LTFM BEST BALANCES GROWTH,PROFITS, CASH FLOW OVER TIME

$ in Millions LTFM

Product Revenue 92%93%

L&R Revenue 7%8%

TOTAL REVENUE 100%

Product Gross Margin (1) 30%36%

Total Gross Margin (1) 35%41%

R&D (1) 7%9%

S&M (1) ~5%

G&A (1) ~3%

Restructuring

Operating Expenses (1) 15%17%

OPERATING INCOME (1) 20%24%

(1) LTFM is Non-GAAP excluding stock comp expense, amortization of acquisition-related intangible assets, purchase accounting

adjustments, and impairment of goodwill and acquisition-related intangible assets.


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2005

$577

2007

$507

2006

$685

2008

($783)

2009

$629

CURRENTLY OPERATING ABOVE LTFMQ110 OPERATING MARGIN(1) = 31%Q409 OPERATING MARGIN(1) = 34% (26% WITHOUT INVENTORY RESERVE BENEFIT)

(1) 20062010 is Non-GAAP Operating Margin excluding stock comp expense, amortization of acquisition-related intangible assets,

purchase accounting adjustments, and impairments of goodwill and acquisition-related intangible assets.

$IN

MILLION

S%

REVENUE

Operating Margin as a % of Total Revenue

($800)

($600)

($400)

($200)

$0

$200

$400

$600

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

-80%

-60%

-40%

-20%

0%

20%

40%


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CUMULATIVE FREE CASH FLOW OF~$1 BILLION SINCE Q309

Cash Flow from Operations Cash Used in Investing Free Cash Flow

Cash Used in Investing excludes purchases, sales and maturities of short-term and long-term marketable securities.

$inMillio

ns

($114)

($24)

$238

$388

($52)($22) ($18)

$43

($166)

($46)

$328

$1

$329

$220

$431

Q109 Q209 Q309 Q409 Q110


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STRONG BALANCE SHEETQ109 Q110

(In Millions)

Cash & Short-term Marketable Securities $1,485 $1,944

Accounts Receivable $109 $234Inventory $552 $568

Other Current Assets $241 $96

Total Current Assets $2,388 $2,842

Long-Term Marketable Securities $897 $1,351

PP&E $373 $276

Notes Receivable & Investments in Flash Ventures $1,468 $1,477

Deferred taxes $46 $31

Intangible Assets, net $59 $53

Other Non-Current Assets $37 $104

Total Assets $5,268 $6,134

Current Liabilities $989 $740

Long-Term Convertible Notes $892 $949

Other Non-Current Liabilities $209 $290

Total Liabilities $2,091 $1,979

Minority interest ($0.3) ($2.4)

Stockholders' Equity $3,177 $4,157

Total Liabilities & Stockholders' Equity $5,268 $6,134

Total Cash, Short -term and Long-term Marketable Securit ies $2,383 $3,295

Total Working Capital $1,399 $2,208

Fab-related Outs tanding Operat ing Lease Guarantees $1,231 $931


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SUMMARY

Broad and diversified product lines with expandedchannel reach

Mobile market current growth driver; Computing

should be next

Continued focus on profitable growth; Profitabilitycurrently above LTFM

Strong cash flow and financial position


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Thank You!


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APPENDICES

Basis of Presentation for Non-GAAP toGAAP Reconciliations

Non-GAAP to GAAP Reconciliations

for Historical Results Non-GAAP to GAAP Reconciliations

for Forecasts


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To supplement our condensed consolidated financial statements presented in accordance with generally acceptedaccounting principles (GAAP), we use non-GAAP measures of operating results, net income (loss) and net income(loss) per share, which are adjusted from results based on GAAP to exclude certain expenses, gains and losses.These non-GAAP financial measures are provided to enhance the user's overall understanding of our currentfinancial performance and our prospects for the future. Specifically, we believe the non-GAAP results provide usefulinformation to both management and investors as these non-GAAP results exclude certain expenses, gains andlosses that we believe are not indicative of our core operating results and because it is consistent with the financial

models and estimates published by many analysts who follow the Company. For example, because the non-GAAPresults exclude the expenses we recorded for share-based compensation, the amortization of acquisition-relatedintangible assets related to acquisitions of Matrix Semiconductor, Inc. in January 2006, msystems Ltd. in November2006 and MusicGremlin, Inc. in June 2008, the impairment of goodwill and acquisition-related intangible assets, andnon-cash economic interest expense associated with our cash-settled convertible debt, we believe the inclusion ofnon-GAAP financial measures provide consistency in our financial reporting. These non-GAAP results are some ofthe primary indicators management uses for assessing our performance, allocating resources and planning andforecasting future periods. Further, management uses non-GAAP information that excludes certain non-cashcharges, such as impairment of goodwill and acquisition-related intangible assets, amortization of purchased

intangible assets, share-based compensation and non-cash economic interest expense associated with our cash-settled convertible debt, as these non-GAAP charges do not reflect the cash operating results of the business or theongoing results. These measures should be considered in addition to results prepared in accordance with GAAP,but should not be considered a substitute for, or superior to, GAAP results. These non-GAAP measures may bedifferent than the non-GAAP measures used by other companies.

BASIS OF PRESENTATION FOR GAAP TONON-GAAP OPERATING RESULTS


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RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSThree months ended April 2, 2006(in thousands, except percentages and per share amounts, unaudited)

SanDisk Purchase SanDisk

Consolidated % of Share-based Accounting Consolidated % of

Non-GAAP Revenue Compensation Adjustments GAAP Revenue

Product revenue 537,728$ 86.3% -$ -$ 537,728$ 86.3%

License and royalty revenue 85,532 13.7% - - 85,532 13.7%

Total revenues 623,260 100.0% - - 623,260 100.0%

Cost of product revenues 384,867 61.8% - - 384,867 61.8%

Total cost of product revenues 384,867 61.8% - - 384,867 61.8%

Product gross profit 152,861 28.4% - - 152,861 28.4%

Gross profit 238,393 38.2% - - 238,393 38.2%

Research and development 54,976 8.8% 8,786 - 63,762 10.2%Sales and marketing 39,336 6.3% 4,039 - 43,375 7.0%

General and administrative 24,055 3.9% 5,961 - 30,016 4.8%

Write-off of acquired in-process technology - 0.0% - 39,600 (a) 39,600 6.4%

Amortization of acquisition-related intangible assets - 0.0% - 3,715 (b) 3,715 0.6%

Total operating expenses 118,367 19.0% 18,786 43,315 180,468 29.0%

Operating income 120,026 19.3% (18,786) (43,315) 57,925 9.3%

Total other income 18,464 3.0% - - 18,464 3.0%

Income before taxes 138,490 22.2% (18,786) (43,315) 76,389 12.3%

Provision for income taxes 48,472 7.8% (5,845) (c) (1,353) (c) 41,274 6.6%

Net income 90,018$ 14.4% (12,941)$ (41,962)$ 35,115$ 5.6%

Net income per share, diluted 0.44$ 0.17$

Diluted shares used in computing net income per share 203,302 201,892

Effective tax rate 35.0% 54.0%

(a) Write-off of acquired in-process technology associated with the Matrix acquisition (January 2006).

(b) Amortization of acquisition-related intangible assets, primarily core and developed technology related to acquisitions of Matrix Semiconductor, Inc. (January 2006).

(c) Income taxes associated with certain non-GAAP adjustments.


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RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSThree months ended July 2, 2006(in thousands, except percentages and per share amounts, unaudited)

SanDisk Purchase Convertible SanDisk

Consolidated % of Share-based Accounting Debt Consolidated % of

Non-GAAP Revenue Compensation Adjustments Interest GAAP (d) Revenue

Product revenue 636,675$ 88.5% -$ -$ -$ 636,675$ 88.5%

License and royalty revenue 82,510 11.5% - - - 82,510 11.5%

Total revenues 719,185 100.0% - - - 719,185 100.0%

Cost of product revenues 427,699 59.5% 2,478 - - 430,177 59.8%

Total cost of product revenues 427,699 59.5% 2,478 - - 430,177 59.8%

Product gross profit 208,976 32.8% (2,478) - - 206,498 32.4%

Gross profit 291,486 40.5% (2,478) - - 289,008 40.2%

Research and development 63,364 8.8% 10,421 - - 73,785 10.3%

Sales and marketing 39,942 5.6% 5,125 - - 45,067 6.3%General and administrative 29,336 4.1% 7,846 - - 37,182 5.2%

Amortization of acquisition-related intangible assets - 0.0% - 4,432 (a) - 4,432 0.6%

Total operating expenses 132,642 18.4% 23,392 4,432 - 160,466 22.3%

Operating income 158,844 22.1% (25,870) (4,432) - 128,542 17.9%

Total other income 22,013 3.1% - - (5,734) (c) 16,279 2.3%

Income before taxes 180,857 25.1% (25,870) (4,432) (5,734) 144,821 20.1%

Provision for income taxes 63,299 8.8% (6,667) (b) (1,718) (b) (1,855) (b) 53,059 7.6%

Net income 117,558$ 16.3% (19,203)$ (2,714)$ (3,879)$ 91,762$ 12.5%




(a) Amortization of acquisition-related intangible assets, primarily core and developed technology related to acquisition of Matrix Semiconductor, Inc. (January 2006).

(b) Income taxes associated with certain non-GAAP adjustments.

(c) Incremental interest expense relating to the non-cash economic interest expense associated with the Company's cash-settled convertible debt.

(d) As adjusted for the retroactive adoption of new accounting requirements, effective December 29, 2008, relating to non-cash economic interest expense associated with the Company's cash-settled convertible debt.


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RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSThree months ended October 1, 2006(in thousands, except percentages and per share amounts, unaudited)




Product revenue 673,189$ 89.6% -$ -$ -$ 673,189$ 89.6%


Total revenues 751,385 100.0% - - - 751,385 100.0%


Total cost of product revenues 452,724 60.3% 2,621 - - 455,345 60.6%

Product gross profit 220,465 32.7% (2,621) - - 217,844 32.4%

Gross profit 298,661 39.7% (2,621) - - 296,040 39.4%









Net income 123,614$ 16.5% (17,572)$ (2,761)$ (7,242)$ 96,039$ 12.3%




(a) Amortization of acquisition-related intangible assets, primarily core and developed technology related to acquisition of Matrix Semiconductor, Inc. (January 2006).



(d) As adjusted for the retroactive adoption of new accounting requirements, effective December 29 , 2008, relating to non-cash economic interest expense associated with the Company's cash-settled convertible debt.


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RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSThree months ended December 31, 2006(in thousands, except percentages and per share amounts, unaudited)



Non-GAAP Revenue Compensation Adjustments Interest GAAP (e) RevenueProduct revenue 1,078,880$ 92.7% -$ -$ -$ 1,078,880$ 92.7%


Total revenues 1,163,695 100.0% - - - 1,163,695 100.0%

Cost of product revenues 729,932 62.7% 2,892 4,471 - 737,295 63.4%

Amortization of acquisition-related intangible assets - - - 10,368 (a) - 10,368 0.9%

Total cost of product revenues 729,932 62.7% 2,892 14,839 - 747,663 64.2%

Product gross profit 348,948 32.3% (2,892) (14,839) - 331,217 30.7%

Gross profit 433,763 37.3% (2,892) (14,839) - 416,032 35.8%


Sales and marketing 62,172 5.3% 7,831 - - 70,003 6.0%

General and administrative 43,843 3.8% 8,547 - - 52,390 4.5%

Write-off of acquired in-process technology - 0.0% - 186,000 (b) - 186,000 16.0%Amortization of acquisition-related intangible assets - 0.0% - 4,853 (a) - 4,853 0.4%



Total other income 31,674 2.7% - - (10,913) (d) 20,761 1.8%


Provision for income taxes 86,409 7.4% (7,689) (c) (1,984) (c) (3,531) (c) 73,205 5.8%

Income (loss) after tax 193,289 16.6% (23,103) (203,708) (7,382) (40,904) -3.1%

Non-controlling interests 1,619 0.1% - - - 1,619 0.1%

Net income (loss ) 191,670$ 16.5% (23,103)$ (203,708)$ (7,382)$ (42,523)$ -3.2%

Net income (loss) per share, diluted 0.87$ (0.20)$

Diluted shares used in computing net income (loss) per share 220,090 210,849


(a) Amortization of acquisition-related intangible assets, primarily core and developed technology related to acquisitions of Matrix Semiconductor, Inc. (January 2006) and msystems Ltd. (N ovember 2006).

(b) Write-off of acquired in-process technology associated with the msystems Ltd. acquisition.

(c) Income taxes associated with certain non-GAAP adjustments.

(d) Incremental interest expense relating to the non-cash economic interest expense associated with the Company's cash-settled convertible debt.

(e) As adjusted for the retroactive adoption of new accounting requirements, effective December 29, 2008, relating to non-cash economic interest expense associated with the Company's cash-settled convertible debt.


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RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSTwelve months ended December 31, 2006(in thousands, except percentages and per share amounts, unaudited)



Non-GAAP Revenue Compensation Adjustments Interest GAAP (e) RevenueProduct revenue 2,926,472$ 89.8% -$ -$ -$ 2,926,472$ 89.8%


Total revenues 3,257,525 100.0% - - - 3,257,525 100.0%

Cost of product revenues 1,995,222 61.2% 7,991 4,471 - 2,007,684 61.6%


Total cost of product revenues 1,995,222 61.2% 7,991 14,839 - 2,018,052 62.0%


Gross profit 1,262,303 38.8% (7,991) (14,839) - 1,239,473 38.0%




Write-off of acquired in-process technology - 0.0% - 225,600 (b) - 225,600 6.9%




Total other income 104,374 3.2% - - (27,353) (d) 77,021 2.4%


Provision for income taxes 264,741 8.1% (27,822) (c) (6,726) (c) (8,850) (c) 221,343 6.8%

Income after tax 524,479 16.1% (72,819) (251,145) (18,503) 182,012 5.6%


Net income 522,860$ 16.1% (72,819)$ (251,145)$ (18,503)$ 180,393$ 5.5%




(a) Amortization of acquisition-related intangible assets, primarily core and developed technology related to acquisitions of Matrix Semiconductor, Inc. (January 2006) and msystems Ltd. (November 2006).

(b) Write-off of acq uired in-process technology associated with the Matrix and msystems Ltd. acquisitions.

(c) Income taxes as sociated with certain non-GAAP adjustments.

(d) Incremental interest expense relating to the non-cash economic interest expense associated with the Company's cash-settled convertible debt.

(e) As ad justed for the retroac tive adoption of new accounting requirements, effective December 29, 2008, relating to non-cash economic interest expense associated with the Company's cash-settled convertible debt.


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Non-GAAP Revenue Compensation Adjustments Interest GAAP (d) RevenueProduct revenue 689,357$ 87.7% -$ -$ -$ 689,357$ 87.7%


Total revenues 786,086 100.0% - - - 786,086 100.0%





Gross profit 224,159 28.5% (3,214) (26,009) - 194,936 24.8%





Restructuring and other 6,516 0.8% - - - 6,516 0.8%


Operating income (loss) 46,811 6.0% (31,219) (35,109) - (19,517) -2.5%




Income (loss) after tax 49,995 6.4% (20,230) (25,180) (5,640) (1,055) -0.1%


Net income (loss) 44,835$ 5.7% (20,230)$ (25,180)$ (5,640)$ (6,215)$ -0.8%

Net income (loss) per share, diluted 0.19$ (0.03)$

Diluted shares used in computing net income (loss) per share 236,426 227,455


(a) Amortization of acquisition-related intangible assets, primarily core and developed technology related to acquisitions of Matrix Semiconductor, Inc. (1/06) and msystems Ltd. (11/06).





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RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSThree months ended July 1, 2007(in thousands, except percentages and per share amounts, unaudited)




Product revenue 719,991$ 87.1% -$ -$ -$ 719,991$ 87.1%


Total revenues 827,032 100.0% - - - 827,032 100.0%





Gross profit 243,722 29.5% (3,307) (16,702) - 223,713 27.1%



General and administrative 30,875 3.7% 10,290 - - 41,165 5.0%Amortization of acquisition-related intangible assets - 0.0% - 7,050 (a) - 7,050 0.9%

Restructuring and other 212 0.0% - - - 212 0.0%






Income after tax 71,893 8.7% (23,698) (19,660) (6,556) 21,979 2.7%

Non-controlling interests 51 0.0% - - - 51 0.0%

Net income 71,842$ 8.7% (23,698)$ (19,660)$ (6,556)$ 21,928$ 2.7%









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RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSThree months ended September 30, 2007(in thousands, except percentages and per share amounts, unaudited)


Consolidated % of Share-based Accounting Debt Consolidated % of Non-GAAP Revenue Compensation Adjustments Interest GAAP (d) Revenue

Product revenue 918,810$ 88.6% -$ -$ -$ 918,810$ 88.6%


Total revenues 1,037,423 100.0% - - - 1,037,423 100.0%





Gross profit 361,064 34.8% (4,162) (14,582) - 342,320 33.0%








Provision for income taxes 61,857 6.0% (11,613) (b) 3,469 (b) (3,548) (b) 50,165 4.8%

Income after tax 129,803 12.5% (22,514) (22,651) (7,989) 76,649 7.4%

Non-controlling interests - 0.0% - - - - 0.0%

Net income 129,803$ 12.5% (22,514)$ (22,651)$ (7,989)$ 76,649$ 7.4%




(a) Amortization of acquisition-related intangible assets, p rimarily core and developed technology related to acquisitions of Matrix Semiconductor, Inc. (1/06) and msystems Ltd. (11/06).



(d) As adjusted for the retroactive adoption of new accounting requirements, effective December 29, 2008, relating to non-cash economic interest expense associated with the Company's cash-se ttled convertible debt.


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Product revenue 1,117,967$ 89.7% -$ -$ -$ 1,117,967$ 89.7%


Total revenues 1,245,825 100.0% - - - 1,245,825 100.0%





Gross profit 460,392 37.0% (4,060) (14,582) - 441,750 35.5%








Provision for income taxes 79,387 6.4% 6,504 (b) (518) (b) (4,216) (b) 81,157 6.5%

Income after tax 161,629 13.0% (37,197) (18,622) (7,556) 98,254 7.9%

Non-controlling interests - 0.0% - - - - 0.0%

Net income 161,629$ 13.0% (37,197)$ (18,622)$ (7,556)$ 98,254$ 7.9%




(a) Amortization of acquisition-related intangible assets, p rimarily core and developed technology related to acquisitions of Matrix Semiconductor, Inc. (1/06) and msystems Ltd. (11/06).





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Product revenue 3,446,125$ 88.4% -$ -$ -$ 3,446,125$ 88.4%


Total revenues 3,896,366 100.0% - - - 3,896,366 100.0%

Cost of product revenues 2,607,029 66.9% 14,743 7,066 - 2,628,838 67.5%


Total cost of product revenues 2,607,029 66.9% 14,743 71,875 - 2,693,647 69.1%


Gross profit 1,289,337 33.1% (14,743) (71,875) - 1,202,719 30.9%











Income after tax 413,320 10.6% (103,639) (86,113) (27,741) 195,827 5.0%


Net income 408,109$ 10.5% (103,639)$ (86,113)$ (27,741)$ 190,616$ 4.9%

Net income per share calculation:

Net income used in computing basic net income per share 408,109$ 190,616$Tax- effected interest costs related to convertible long term debt 469 469

Net income used in computing diluted net income per share 408,578$ 191,085$

Net income per s hare, diluted 1.73$ 0.81$





(c) Incremental interest expense relating to the non-cash economic interest expense associated with the Company's cash-se ttled convertible debt.

(d) As adjusted for the re troactive adoption of new accounting requirements, effective December 29, 2008, re lating to non-cash economic interest expense associated with the C ompany's cash-settled convertible debt.


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RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSThree months ended March 30, 2008(in thousands, except percentages and per share amounts, unaudited)



Product revenue 724,051$ 85.2% -$ -$ -$ 724,051$ 85.2%


Total revenues 849,967 100.0% - - - 849,967 100.0%





Gross profit 276,992 32.6% (3,629) (14,582) - 258,781 30.4%

Research and development 102,608 12.1% 8,826 - - 111,434 13.1%Sales and marketing 76,645 9.0% 3,511 - - 80,156 9.4%








Net income 47,786$ 5.6% (15,188)$ (14,718)$ (6,920)$ 10,960$ 1.3%




(a) Amortization of acquisition-related intangible assets, primarily core and developed technology related to acquisitions of Matrix Semiconductor, Inc. (1 /06) and msystems Ltd. (11/06).



(d) As adjusted for the retro active adoption of new accounting requirements, effective December 29 , 2008, relating to non-cash economic interest expense associated with the Company's cash-settled convertible debt.


34/45


RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSThree months ended June 29, 2008(in thousands, except percentages and per share amounts, unaudited)



Product revenue 687,508$ 84.3% -$ -$ -$ 687,508$ 84.3%


Total revenues 816,011 100.0% - - - 816,011 100.0%





Gross profit 167,462 20.5% (2,009) (14,582) - 150,871 18.5%






Operating loss (56,989) -7.0% (25,108) (19,135) - (101,232) -12.4%


Loss before taxes (36,447) -4.5% (25,108) (19,135) (12,219) (92,909) -11.4%

Benefit from income taxes (14,106) -1.7% 652 (b) 641 (b) (6,342) (b) (19,155) -2.3%

Net loss (22,341)$ -2.7% (25,760)$ (19,776)$ (5,877)$ (73,754)$ -9.0%

Net loss per share, diluted (0.10)$ (0.33)$

Diluted shares used in computing net loss per share 224,888 224,888


(a) Amortization of acquisition-related intangible assets, p rimarily core and developed technology related to acquisitions of Matrix Semiconductor, Inc. (January 2006), msystems Ltd. (November 2006),

and MusicGremlin, Inc. (June 2008).





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RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSThree months ended September 28, 2008(in thousands, except percentages and per share amounts, unaudited)



Product revenue 689,556$ 83.9% -$ -$ -$ 689,556$ 83.9%


Total revenues 821,497 100.0% - - - 821,497 100.0%




Product gross loss (120,628) -17.5% (2,648) (14,582) - (137,858) -20.0%

Gross profit (loss) 11,313 1.4% (2,648) (14,582) - (5,917) -0.7%





Operating loss (205,294) -25.0% (25,551) (19,348) - (250,193) -30.5%

Total other loss (450) -0.1% - - (12,451) (c) (12,901) -1.6%

Loss before taxes (205,744) -25.0% (25,551) (19,348) (12,451) (263,094) -32.0%

Benefit from income taxes (73,656) -9.0% (10,853) (b) (10,940) (b) (1,746) (b) (97,195) -11.8%

Net loss (132,088)$ -16.1% (14,698)$ (8,408)$ (10,705)$ (165,899)$ -20.2%




(a) Amortization of acquisition-related intangible assets, p rimarily core and developed technology related to acquisitions of Matrix Semiconductor, Inc. (January 2006), msystems Ltd. (November 2006),




(d) As adjusted for the re troactive adoption of new accounting requirements, effective December 29, 2008, relating to non-cash economic interest expense associated with the Company's cash-settled convertible debt.


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Non-GAAP Revenue Compensation Adjustments Interest Impairments GAAP (e) Revenue

Product revenue 742,128$ 85.9% -$ -$ -$ -$ 742,128$ 85.9%

License and royalty revenue 121,749 14.1% - - - - 121,749 14.1%

Total revenues 863,877 100.0% - - - - 863,877 100.0%

Cost of product revenues 1,191,270 137.9% 2,489 - - - 1,193,759 138.2%

Amortization of acquisition-related intangible assets - - - 10,766 (a) - - 10,766 1.2%

Total cost of product revenues 1,191,270 137.9% 2,489 10,766 - - 1,204,525 139.4%

Product gross loss (449,142) -60.5% (2,489) (10,766) - - (462,397) -62.3%

Gross loss (327,393) -37.9% (2,489) (10,766) - - (340,648) -39.4%

Research and development 91,651 10.6% 10,161 - - - 101,812 11.8%

Sales and marketing 77,839 9.0% 4,587 - - - 82,426 9.5%

General and administrative 39,509 4.6% 6,677 - - - 46,186 5.3%

Impairment of goodwill - 0.0% - - - 845,453 (d) 845,453 97.9%Impairment of acquisition-related intangible assets - 0.0% - - - 175,785 (d) 175,785 20.3%

Amortization of acquisition-related intangible assets - 0.0% - 3,275 (a) - - 3,275 0.4%

Restructuring and other 31,382 3.6% - - - - 31,382 3.6%

Total operating expenses 240,381 27.8% 21,425 3,275 - 1,021,238 1,286,319 148.9%

Operating loss (567,774) -65.7% (23,914) (14,041) - (1,021,238) (1,626,967) -188.3%

Total other income 24,472 2.8% - - (12,673) (c) - 11,799 1.4%

Loss before taxes (543,302) -62.9% (23,914) (14,041) (12,673) (1,021,238) (1,615,168) -187.0%

Provision for (benefit from) income taxes (183,971) -21.3% (12,065) (b) (7,084) (b) (106,327) (b) 452,210 (b) 142,763 16.5%

Net loss (359,331)$ -41.6% (11,849)$ (6,957)$ 93,654$ (1,473,448)$ (1,757,931)$ -203.5%



Effective tax rate 33.9% -8.8%

(a) Amortization of acquisition-related intangible assets, primarily core and developed technology related to acquisitions of Matrix Semiconductor, Inc. (January 2006), msystems Ltd. (November 2006),


(b) Income taxes associated with certain non-GAAP adjustments and an allowance on deferred taxes.

(c) Incremental interest expense relating to the non-cash economic interest expense associated with the Company's cash- settled convertible deb t.

(d) Impairment of goodwill and acquisition-related intangible assets primarily related to acquisitions of Matrix Semiconductor, Inc. (January 2006), msystems Ltd. (November 2006), MusicGremlin, Inc. (June 2008 ).

(e) As adjusted for the re trospective adoption of new accounting requirements, effective December 29, 2008, re lating to non-cash economic interest expense associated with the Company's cash-settled convertible debt.


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Non-GAAP Revenue Compensation Adjustments Interest Impairments GAAP (e) Revenue

Product revenue 2,843,243$ 84.8% -$ -$ -$ -$ 2,843,243$ 84.8%

License and royalty revenue 508,109 15.2% - - - - 508,109 15.2%

Total revenues 3,351,352 100.0% - - - - 3,351,352 100.0%

Cost of product revenues 3,222,978 96.2% 10,775 - - - 3,233,753 96.5%


Total cost of product revenues 3,222,978 96.2% 10,775 54,512 - - 3,288,265 98.1%


Gross profit 128,374 3.8% (10,775) (54,512) - - 63,087 1.9%




Impairment of goodwill - 0.0% - - - 845,453 (d) 845,453 25.2%Impairment of acquisition-related intangible assets - 0.0% - - - 175,785 (d) 175,785 5.2%


Restructuring and other 35,467 1.1% - - - - 35,467 1.1%

Total operating expenses 911,236 27.2% 87,024 17,069 - 1,021,238 2,036,567 60.8%

Operating loss (782,862) -23.4% (97,799) (71,581) - (1,021,238) (1,973,480) -58.9%

Total other income 70,446 2.1% - - (49,340) (c) - 21,106 0.6%

Loss before taxes (712,416) -21.3% (97,799) (71,581) (49,340) (1,021,238) (1,952,374) -58.3%

Provision for (benefit from) income taxes (246,442) -7.4% (30,304) (b) (21,722) (b) (119,492) (b) 452,210 (b) 34,250 1.0%

Net loss (465,974)$ -13.9% (67,495)$ (49,859)$ 70,152$ (1,473,448)$ (1,986,624)$ -59.3%




(a) Amortization of acquisition-related intangible assets, primarily core and developed technology related to acquisitions of Matrix Semiconductor, Inc. (January 2006), msystems Ltd. (November 2006),


(b) Income taxes associated with certain non-GAAP adjustments and an allowance on deferred taxes.

(c) Incremental interest expense relating to the non-cash economic interest expense associated with the Company's cash- settled convertible deb t.

(d) Impairment of goodwill and acquisition-related intangible assets primarily related to acquisitions of Matrix Semiconductor, Inc. (January 2006), msystems Ltd. (November 2006), MusicGremlin, Inc. (June 2008 ).

(e) As adjusted for the re trospective adoption of new accounting requirements, effective December 29, 2008, re lating to non-cash economic interest expense associated with the Company's cash-settled convertible debt.


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RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSThree months ended March 29, 2009(in thousands, except percentages and per share amounts, unaudited)

Purchase Convertible

% of Share-based Accounting Debt % of

Non-GAAP Revenue Compensation Adjustments Interest Other GAAP Revenue

Product revenues 588,099$ 89.2% -$ -$ -$ -$ 588,099$ 89.2%

License and royalty revenues 71,372 10.8% - - - - 71,372 10.8%

Total revenues 659,471 100.0% - - - - 659,471 100.0%

Cost of product revenues 655,104 99.3% 2,374 - - - 657,478 99.7%


Total cost of product revenues 655,104 99.3% 2,374 3,132 - - 660,610 100.2%


Gross profit (loss) 4,367 0.7% (2,374) (3,132) - - (1,139) -0.2%




Amortization of acquisition-related intangible assets - - - 292 (a) - - 292 0.0%

Restructuring and other 765 0.1% - - - - 765 0.1%

Total operating expenses 149,948 22.8% 13,956 292 - - 164,196 24.9%

Operating loss (145,581) -22.1% (16,330) (3,424) - - (165,335) -25.1%

Other income/(expense) (5,767) -0.8% - - (12,926) (b) - (18,693) -2.8%

Loss before income taxes (151,348) -22.9% (16,330) (3,424) (12,926) - (184,028) -27.9%

Provision for (benefit from) income taxes (42,885) -6.5% (4,511) (1,268) (4,791) 77,422 (c) 23,967 3.6%

Net loss (108,463)$ -16.4% (11,819)$ (2,156)$ (8,135)$ (77,422)$ (207,995)$ -31.5%




(a) Amortization of acquisition-related intangible assets, primarily core and developed technology related to acquisitions of Matrix Semiconductor, Inc. (1/06) and MusicGremlin, Inc. (6/08).

(b) Incremental interest expense relating to the non-cash economic interest expense associated with the Company's cash-settled convertible debt.

(c) Income taxes associated with certain non-GAAP to GAAP adjustments.


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RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSThree months ended June 28, 2009(in thousands, except percentages and per share amounts, unaudited)




Product revenues 610,432$ 83.6% -$ -$ -$ -$ 610,432$ 83.6%


Total revenues 730,573 100.0% - - - - 730,573 100.0%

Cost of product revenues 475,998 65.2% 2,446 - - - 478,444 65.5%


Total cost of product revenues 475,998 65.2% 2,446 3,132 - - 481,576 65.9%

Product gross profit 134,434 22.0% (2,446) (3,132) - - 128,856 21.1%

Gross profit 254,575 34.8% (2,446) (3,132) - - 248,997 34.1%




Amortization of acquisition-related intangible assets - 0.0% - 291 (a) - - 291 0.0%


Operating income 94,219 12.9% (22,354) (3,423) - - 68,442 9.4%

Other income (expense) 17,875 2.4% - - (13,159) (b) - 4,716 0.6%

Income before income taxes 112,094 15.3% (22,354) (3,423) (13,159) - 73,158 10.0%

Provision for income taxes 29,146 3.9% (6,175) (1,270) (4,877) 3,827 (c) 20,651 2.8%

Net income 82,948$ 11.4% (16,179)$ (2,153)$ (8,282)$ (3,827)$ 52,507$ 7.2%




(a) Amortization of acquisition-related intangible assets, primarily core and developed technology related to acquisitions of Matrix Semiconductor, Inc. (1/06) and MusicGremlin, Inc. (6/08).

(b) Incremental interest expense relating to the non-cash economic interest expense as sociated with the C ompany's cash-settled convertible debt.

(c) Income taxes assoc iated with certain non-GAAP to GAAP adjustments.


40/45


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RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSThree months ended January 3, 2010(in thousands, except percentages and per share amounts, unaudited)




Product revenues 1,141,972$ 92.0% -$ -$ -$ -$ 1,141,972$ 92.0%


Total revenues 1,241,591 100.0% - - - - 1,241,591 100.0%

Cost of product revenues 632,700 55.4% (a) 5,260 (b) - - - 637,960 55.9%

Amortization of acquisition-related intangible assets - 0.0% (a) - 3,133 (c) - - 3,133 0.2%

Total cost of product revenues 632,700 55.4% (a) 5,260 3,133 - - 641,093 56.1%

Product gross profit 509,272 44.6% (a) (5,260) (3,133) - - 500,879 43.9%

Total gross profit 608,891 49.0% (5,260) (3,133) - - 600,498 48.4% (a)

(a)

Research and development 97,020 7.8% 14,058 (b) - - - 111,078 8.9% (a)

Sales and marketing 56,383 4.5% 8,094 (b) - - - 64,477 5.2%

General and administrative 38,958 3.2% 10,090 (b) - - - 49,048 4.1% (a)

Amortization of acquisition-related intangible assets - 0.0% - 292 (c) - - 292 0.0%Restructuring and other (727) -0.1% - - - - (727) -0.1%



Other income (expense) 15,885 1.3% - - (14,959) (d) - 926 0.1%


Provision for income taxes 155,931 12.6% (10,213) (1,342) (5,837) (100,788) (e) 37,751 3.1%

Net income 277,211$ 22.3% (27,289)$ (2,083)$ (9,122)$ 100,788$ 339,505$ 27.3%




(a)

(b)

(c)

(d)

(e) Income taxes associated with certain non-GAAP to GAAP adjustments.

Percent of revenue calculations for cost of product revenues and product gross profit are based on product revenues only (license and royalty revenues are excluded).

Share-based co mpensation expense. The fourth quarter and full fiscal year 2009 include a one- time cumulative adjustment of $16. 2 million to increase share -based compensation due to the way in which the Company's third-party software

Amortization of acquisition-related intangible a ssets, primarily core and developed technology related to acquisitions of Matrix Semiconductor, Inc. (1/06) and MusicGremlin, Inc. (6/08).

Incremental interest expense relating to the non-cash economic interest expense associated with the Company's cash-settled convertible debt.


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RECONCILIATION OF NON-GAAP TO GAAP STATEMENT OF OPERATIONSFor the year ended January 3, 2010(in thousands, except percentages and per share amounts, unaudited)




Product revenues 3,154,314$ 88.4% -$ -$ -$ -$ 3,154,314$ 88.4%


Total revenues 3,566,806 100.0% - - - - 3,566,806 100.0%

Cost of product revenues 2,257,224 71.6% (a) 12,427 (b) - - - 2,269,651 72.0%

Amortization of acquisition-related intangible assets - 0.0% (a) - 12,529 (c) - - 12,529 0.4%

Total cost of product revenues 2,257,224 71.6% (a) 12,427 12,529 - - 2,282,180 72.4%

Product gross profit 897,090 28.4% (a) (12,427) (12,529) - - 872,134 27.6%

Total gross profit 1,309,582 36.7% (12,427) (12,529) - - 1,284,626 36.0% (a)

(a)

Research and development 347,759 9.7% 36,399 (b) - - - 384,158 10.8% (a)


General and administrative 143,872 4.1% 27,487 (b) - - - 171,359 4.8% (a)

Amortization of acquisition-related intangible assets - 0.0% - 1,167 (c) - - 1,167 0.0%Restructuring and other 38 0.0% - - - - 38 0.0%

Total operating expenses 680,936 19.1% 83,133 1,167 - - 765,236 21.4%


Other income (expense) 38,865 1.1% - - (54,454) (d) - (15,589) -0.5%



Net income 427,207$ 12.0% (69,309)$ (8,546)$ (33,979)$ 99,937$ 415,310$ 11.6%




(a)

(b)

(c)

(d)


Percent of revenue ca lculations for cost of p roduct revenues and product gross profit are based on pr oduct revenues only (license and royalty revenues are excluded).

Share-based compensation expense. The fourth quarter and full fiscal year 20 09 include a one-time cumulative adjustment of $16.2 million to increase share-based compensation due to the way in which the Company's third-party software

Amortization of acquisition-related intangible assets, primarily core and developed technology related to acquisitions of Matrix Semiconductor, Inc. (1/06) and MusicGremlin, Inc. (6/08).

Incremental interest expense re lating to the non-cash economic interest expense associated with the Company's cash-settled convertible debt.


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Non-GAAP Revenue Compensation Adjustments Interest Other GAAP RevenueProduct revenues 993,195$ 91.4% -$ -$ -$ -$ 993,195$ 91.4%


Total revenues 1,086,663 100.0% - - - - 1,086,663 100.0%

Cost of product revenues 580,895 58.5% (a) 2,458 (b) - - - 583,353 58.7% (a)

Amortization of acquisition-related intangible assets - 0.0% (a) - 3,132 (c) - - 3,132 0.4% (a)

Total cost of product revenues 580,895 58.5% (a) 2,458 3,132 - - 586,485 59.1% (a)

Product gross profit 412,300 41.5% (a) (2,458) (3,132) - - 406,710 40.9% (a)

Total gross profit 505,768 46.5% (2,458) (3,132) - - 500,178 46.0%

Research and development 91,851 8.5% 6,802 (b) - - - 98,653 9.1%


General and administrative 33,302 2.9% 5,422 (b) - - - 38,724 3.5%

Amortization of acquisition-related intangible assets - 0.0% - 292 (c) - - 292 0.0%



Other income (expense) 22,907 2.1% - - (13,921) (d) - 8,986 0.8%



Net income 225,042$ 20.7% (12,236)$ (2,157)$ (8,770)$ 32,812$ 234,691$ 21.6%




(a)

(b)

(c)

(d)


Percent of revenue calculations for cost of prod uct revenues and product gross profit are based on product revenues only (license and royalty revenues are excluded).

Share-based compensation expense.

Amortization of acquisition-related intangible assets, primarily core and developed technology related to acquisitions of Matrix Semiconductor, Inc. (1/06) and MusicGremlin, Inc. (6/08).

Incremental interest expense relating to the non-cash economic interest expense associated with the Company's cash-settled convertible debt.


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RECONCILATION OF NON-GAAP TO GAAP FOR LONG-TERMFINANCIAL MODELProvided on February 26, 2010 Investor Day Meeting

LTFMLong-Term

Target

Financial Adjustments

Model To Reconcile

Non-GAAP To GAAP (1) GAAP

Revenue

Revenue Growth Y/Y

Product Revenue 92% - 93% - 92% - 93%L&R Revenue 7% - 8% - 7% - 8%

Total Revenue 100% - 100%

Product Gross Margin 30% - 36% (1%) 29% - 35%

Total Gross Margin 35% - 41% (1%) 34% - 40%

R&D 7% - 9% 1% 8% - 9%

S&M ~5% 1% ~6%

G&A ~3% 1% ~4%

Oper Expenses 15% - 17% 2% 17% - 19%

Oper Income 20% - 24% 3% 17% - 21%

(1) Estimated stock compensation expense and amortization of

acquisition-related intangible assets.


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Request-ThinkEquity 2010 Conference Slides (1)

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